Irish Banks Undergo Government Review

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Ireland has completed a review of three of the country’s largest banks, pointing out potential capital shortfalls, Reuters reports. Ireland is one of the few true success stories on a European continent plagued by economic woes and regulatory nightmares. The country has recently announced that it will be exiting its bailout program provided by international creditors to help the nation keep its banks afloat. With December 15 set as the date for the exit to be completed, the country underwent a review of the balance sheets of its three primary lenders.

The findings were, on the surface, positive. None of the institutions will be forced to raise capital on an immediate basis. However, the full results are yet to be made public, and detailed reports about the findings are unavailable. Only one bank, the Bank of Ireland, has published a report on the recommendations of the central bank, which were to raise hundreds of millions of euros of additional funds to cover potential problem areas in its loans and assets. The Bank of Ireland disagrees with the central bank’s report, and it has stated that talks between the two institutions are currently underway to sort out specific discrepancies in the analyses.

According to the report, the Bank of Ireland will need an additional 360 million euros to cover mortgage loans, 486 million euros in provisions for commercial loans, and 547 million euros to cover losses that are expected to occur that the bank has not currently anticipated. The Bank of Ireland is contesting many of those numbers, saying that they reflect industry-wide templates that are not applicable to many of the bank’s specific assets.

The use of such as industry-wide grid in the assessment is just one of the ways that the Irish central bank’s assessment will differ from that of the European Central Bank. The ECB will be performing a series of stress tests and an asset quality review on all major European banks in the run-up to the institution assuming a regulatory role in the industry by the end of 2014.

While some Irish officials had expected that their assessment could take the place of the ECB’s oversight preparations, Mario Draghi, the chief of the European Central Bank, said this past week that that would not be the case. He noted that Irish banks would be held to the same standards as those in the rest of the eurozone, and that the country would not be receiving special treatment because of its private review. This may come as good news to the Bank of Ireland in the short term, as it will get a second chance with officials. However, while the Irish report contains only recommendations, the ECB’s review will force banks to raise funds to cover any weaknesses that are unveiled.

Analysts looking to get a feel for the European Central Bank’s review process will now look to Slovenia, where results from stress testing are due out this Thursday. Similar results from Germany, the region’s largest economy, are set to be released by the end of the month.

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